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    Sunday, April 04, 2010


    YTC Resources ( ytc:ax)

    YTC Resources is a microcap ($36M AUD) Australian mining and exploration company. It’s probably the cheapest gold miner that I identified in this post on Cheap Gold Mining Stocks.


    They are focusing on developing a mine for their Hera project while they continue to explorer their gold, base metal and tin projects in New South Wales, Australia. The companies projects include:

    * these projects were part of the initial float of YTC.

    Doradilla and Giant’s Den both contain Indium which is a precious metal with increasing high tech applications including LCD and plasma screens.

    Most of the readily ascertainable value in YTC lies with the Hera project.

    Hera Project

    The Hear project has an interesting history. It was discovered in 2001 by Pasminco, Triako purchased it from Pasminco’s receiver in 2003. They completed a pre-feasibility study in 2005 and then CBH took over Triako in a $70M scrip deal. Hera was Triako’s major asset at the time. CBH increased the size of the resource and permitted the initial parts of the mine (decline). Then in 2009 YTC purchased Hera from CBH for $11M in cash plus a royalty interest of 5% of gold Dore production capped at 250k oz. YTC also purchased an 80% interest in the nearby Nymagee JV for $1M in cash. Best case CBH got $11M plus around a $15M royalty stream over time. YTC got a $66M project with substantial upside that CBH had paid around $70M for in 2005. CBH wanted to use the cash proceeds to focus on core projects including their nearby Endeavour project. This is another great example of cashed up juniors that purchased assets from larger companies who needed or had “better” uses for the cash during the GFC. This bottom fishing during the financial crisis is common to a few of my favourite ideas including Cape Lambert and Bass Metals. This savvy behaviour augers well for TYC’s capital allocation decision making.

    YTC’s analysis based on the work the CBH undertook presents a mine plan for only one of ten lenses identified in the area. This is the base case mine plan. This base case has an NPV of $90m according to YTC’s analysis excluding capital expenditure (capex). Subtracting the estimated 23.4M of capex leaves an NPV of $66.6M AUD. The discount rate used appears to be 10% and this is relatively close to my calculation of 10.5% once mining begins. The current discount rate is 9.5% before the mine development commences (the difference is based on the amount of cash on hand). These are close enough that I would not make an adjustment. The NPV is based on $800USD gold but at an AUDUSD of 0.7 (1142AUD/oz). This is only slightly lower than the current $1100USD gold at .92 ($1195AUD/oz). Finally there appear to be substantial optimizations that YTC are exploring to reduce costs that ought to improve the NPV. These optimizations and a definitive feasibility study will be released this year.

    YTC believes there is an easy addition of the 1530 and West lens to add 2 years to the mine life which would increase the NPV by 16M less exploration costs.

    To fund the Hera acquisition and to develop the project YTC conducted a capital raising placing 123M shares at .21 for $26m before costs. The company will need $23M to get the mine into production and currently have $10M on hand (the $26M raising had to cover the purchase of Hera also). The shortfall will come from another capital raising or from debt. The risk of another capital raising may be holding the share price down. At the current 21c share price the company would need to issue another 71M shares (42%) above the current 169M shares outstanding. Ideally I'd like to see the company do a heavily discounted rights offering, something like 1:1 for shares at 10c.


    YTC have net assets of $27M including capitalized exploration and evaluation expenditure. $10M excluding E&E. It is reasonable to use the $17M capitalized exploration & evaluation expenditure minus Hera’s $12.2M as a conservative value of YTC’s other assets, adding a multiple to this starts to become more aggressive (the multiple is used in the “Good Case” below).

    Valuation based on decreasing levels of confidence



    Additional Value

    Total Value


    Worst Case Net Cash  

    $ 10,000,000


    Base case Hera project base case

    $ 66,000,000

    $ 76,000,000


      Other Projects (at 1x book)

    $ 4,900,000

    $ 80,900,000


    Improving case Hera project with likely extension

    $ 15,000,000

    $ 95,900,000


    Good Case Hear Project with extension and other projects (1.5x book)

    $ 7,350,000

    $ 103,250,000


    YTC History


    Directors own 8.4M shares (5%) and 3.5M (2%) options for a total of 7% of shares outstanding. The CEO Mr Rimas Kairaitis received a salary of $200k to Dec 2008 and then took a 25k pay cut in 2009 due to the GFC. Yunnan Tin owns 20% of YTC and Wonderful Investments Limited owns 9%. Yunnan Tin is the world’s largest producer of tin and major non-ferrous metals and has mineral exploration, mining, dressing, smelting chemical production and marketing interest. Yunnan Tin has interests in two listed companies on Chinese exchanges. Wonderful Investments is somewhat mysterious company out of Hong Kong and is apparently unaffiliated with Yunnan Tin. They appear to have no other investments except for YTC. Suffice it to say that “China” owns 27% of YTC. The alliance with Yunnan Tin gives YTC access to substantial operational and marketing expertise, potential capital  and the Chinese resource market. In turn YTC have the right to bid/quote for any tender issued by YTC and to negotiate an off take arrangement on commercial terms.

    YTC’s share holding is in line with the Australian Government’s foreign investment view which is that Chinese companies can be partners but not outright own Australian projects. Therefore YTC does not have the opportunity to buy out all of YTC. The strategic fit for them is presence in the Australian market and the off take agreements. Yunnan Tin have bought some of their shares in YTC at much higher prices than today’s.


    YTC trades for 1.24 times book versus 3.8 times book for the Precious Metals/ Minerals industry which would support a valuation of 64c. Compared to the share price today at 21c, YTC has a base case valuation upside of 130% with reasonable upside to 200% and more. I’d buy YTC at 21c and would be a seller in the 50s in the absence of new data.

    (I’ve revised the amounts under capitalized E&E to firstly show the correct amounts and then to remove Hera.)

    Saturday, April 03, 2010


    Cheap Australian Small Cap Gold Stocks

    Based on the excellent RCR Gold Company Review and some additional research I’ve evaluated a number of smaller Australian Gold Stocks. I’ve shown the highest rating ideas below.




    EV resv+resource us$/unit

    Price to Book

    Current Price (PPS)

    % fm 12 month low


    Blended NAV (PPS)

    Distance fm target

    All time high date

    All time high price (PPS)

    distance fm all time high

    Mcap (M)

    Debt (not net of cash)

    Noresman $ 35.40 2.3 $ 0.74 45% WA $ 1.35 82% Nov-09 $ 1.35 82% $ 84.60 6m
    Eleckra $ 23.00 2.9 $ 0.11 250% WA $ 0.19 76% May-07 $ 0.65 519% $ 20.56 -
    Dragon Mining   1.39 $ 0.08 66% Finland $ 0.19 123% Oct-07 $ 0.15 81% $ 61.20 17m
    North QLD Metals $ 180.60 1.2 $ 0.23 15% QLD $ 0.48 109% Dec-07 $ 0.53 130% $ 65.40 -
    Cortona $ 33.40 0.8 $ 0.15 21% NSW $ 0.35 141% Dec-07 $ 0.52 259% $ 24.68 -
    YTC resources $ 86.50 1.3 $ 0.21 110% NSW $ 0.75 257% Aug-07 $ 1.43 581% $ 34.48 -

    These stocks are particularly interesting because I believe the macro environment supports a higher gold price. These stocks, because they are so small and under researched, have the potential for great returns regardless of the gold price (well not if it falls 50%) and the potential to scream higher if gold does.

    The common trait of these opportunities is a very small market cap, a very low Price to Book (average is 4), and a low EV to total resource and reserves (average is 95).

    The macro problem for Australian gold stocks is the Australian Dollar. Gold is worth less in AUD as the AUD strengthens. (The alternative view is the cost as a % of each oz increases if measured in gold.) This is a risk but substantially less of a risk while the AUD is at .91 USD. The AUD probably has 10-15% to purchasing power parity. You get the added bonus of a higher AUD gold price if markets (especially China) correct and the AUD falls though Australian stocks do not usually reflect this bonus, they just fall.

    All of these stocks are sufficiently undervalued that they warrant further investigation. YTC seems particularly interesting. I’ll post some detailed analyses shortly.


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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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